Tax Cutters Set Up Tomorrow’s Fiscal Crisis

By Simon JohnsonThis post slightly updates the first few paragraphs of my most recent column on Bloomberg, which ran last week.  For the rest of that column, use this link.

President Barack Obama is receiving congratulations for moving to the center on the tax agreement with Republicans.

Both sides think they got something: Democrats feel this will nudge unemployment below 8.5 percent in 2012, helping the president get reelected; Republicans achieved longstanding goals on measures such as the estate tax and think they will get most of the credit for an economic recovery that’s already under way.

The truth is, the deal moved us closer to a fiscal crisis, just as the euro zone now is experiencing.

Who will emerge on top in the U.S. version is harder to predict; at the moment, Republicans have the edge. But it’s not clear even they will be happy with what they wished for — an opportunity to enact massive federal government spending cuts.

To read the rest of this column, please click here.  Alternatively, you can use the full address: http://www.bloomberg.com/news/2010-12-23/tax-cutters-set-up-tomorrow-s-fiscal-crisis-commentary-by-simon-johnson.html

50 responses to “Tax Cutters Set Up Tomorrow’s Fiscal Crisis

  1. What makes sense is a paradigm shift. This is the time. We need to build our REAL economy by making things in the United States again, and paying people a living wage to do so. We’ve got–I believe the figure I read was $2.5 tril of crictial infrastructure maintenance and rebuilding that needs doing in the next 5 years.

    We need to stop listening to the financiers (charlatans) and pundits who got us into this mess and profited mightily by it.

    Money is a public utility. Check out three (potentially complementary approaches): those of Ellen H. Brown, the American Monetary Institute and http://www.steadystate.org.

    Also, if you haven’t seen “Inside Job,” GO.

  2. “for moving to the center on the tax agreement”

    Extending the tax cuts for the first $250k of income and returning the estate tax to 2009 levels as he originally proposed would have roughly been “centrist”. Nowadays it seems that only the looniest far right proposal is considered “centrist” for some reason.

    “Democrats feel this will nudge unemployment below 8.5 percent in 2012, helping the president get reelected”

    Regardless of the odds that this will come true or not, when did an 8.5% unemployment rate become a marker for success, for the notion that this represents a strong economy that voters will feel good about? Talk about lowering the bar….

  3. MEDIAN retirement account for US households is $2,000… the MEAN is $50,000!

    Why the Difference? Wealth Inequality!

    An imbalance between rich and poor is the oldest and most fatal ailment of all republics.”
    – Plutarch

    Decision Technologies: Currencies and the Social Contract

    http://culturalengineer.blogspot.com/2010/07/decision-technologies-currencies-and.html

  4. All this legislation is working as intended. Simon and many other economists keep writing about all the legislation related to finance as failure because they see government’s purpose to be protecting the lives of the majority. In truth, this legislation is behaving exactly as intended: allowing the privileged minority to continue robbing society blind until the bitter end.

    They haven’t failed. They’ve succeeded beyond their wildest, greediest dreams.

  5. We can cut military spending to meaningful extent without making ourselves less safe.

    When it comes to medicare and social security, adjustments of expectations, rather than slashing of benefits, is probably sufficient to cure our structural deficit, and left undone is the primary cause of the structural deficit – not low taxes.

    Restricting growth of social security and medicare spending per capita to the rate of inflation gets us most of the way there without increasing taxation. Raising the retirement age in accordance with increases in longevity gets us a good deal further.

    The demand of the baby boomers and their offspring to receive greater and greater publicly-sponsored benefits than they paid for for their parents, without having raised sufficient children or allowed sufficient immigrants to maintain the ratio of payers to recipients, is a problem that is easily fixed with a simple “no”. The growth in entitlements cannot exceed the growth in GDP without either increasing taxation (unjustly) or widening the deficit. What else is there to say?

  6. It’s the spending side plain and simple. Until spending is controlled no amount of taxation will close the deficit. Obama and the Democrats railed against Bush and his deficit only to triple it in less than two years. The height of arrogance and hypocrisy. He owns the deficit now! His deficit commission is political theater. There are solutions out there but the socialists are opposed to any ideas that limit the size and scope of government. The collapse of government is the only outcome. A revisit to Britain of the 70s and the Eurozone of today is where we are headed. Bernacke is a disgrace and should be removed immediately.

  7. “Second, a state or other entity will get into serious trouble and threaten to default, creating a potential Lehman- type moment. The question is, just how much is the federal government on the hook?” A couple of things: a) The Fed will keep propping up Wall Street while the rating agencies will down-grade “too big to fail(ed) States” such as California, Illinois, New Jersey as stimulus subsidies get spent and expire by next summer for some of these deficits. b) President Obama is losing his credibility: it will just be a matter of time as to how much he will cave in to Republican demands, and other questionable solutions to the country’s problems; Pres Obama could win a second term (pending the new chief economic advisor) or, end up as a one-term Democratic president, then switch political parties if he lets his ego overtake his common sense; c) no surprise if the next financial crisis evolves just in time for the 2012 elections, urging the Republicans, currently, to keep the president’s successes at a minimum; d) it was pointed out that three factors could help U.S trade parity with China (increase China’s currency value, borrowing rates and hourly wages while policy recommendation of increased investment (R&D) and education here in the U.S.); see Huffington’s Post on globalization, off-shoring of American jobs, and why many of them will not be coming back to the states anytime soon, if ever; which then suggests a real need to retool and re-skill the workforce into other areas of viable employment; e) have no plans to see the movie “Inside Job” because we already know everything there is to know – the so-called experts say it’s hopeless anyways, therefore, we can safely hold hands and jump off the Bridge To Nowhere, details at 11.

  8. NewsFlash: The american consumer overextended his/her self creating this massive financial failure! Americas’ deficit was deliberately caused by the illiterate, and greedy homeowners! It was the american working unions, and shoddy labor that moved jobs overseas! It was the audacity of the american worker wanting such a high minimum wage that forced corporate america to relocate offshore!
    Please note, these jobs are gone, and the ones’ that remain will be in the Gov’t, Military, Security,and McDonald’s via house cleaning!
    God bless the “Oligarchy”,..Fini!
    Don’t kill the messenger, but this is the very BS that the news outlets are telling/bombarding us daily…and we’re beginning to swollow, big-time, “The Great Society of American Patsies”! (Pardon the overly use of exclaimations!!!)
    Lastly, who says great leaders “Must” be well educated? What happened to “Common Sense”?
    Check out these few “Illiterates” that changed the course of history for the better:
    Socrates
    Jesus Christ
    Muhammad
    Andrew Jackson
    Albert Einstein *( on the cusp as a child?)

    Of course I’m being overly sarcastic…but if we as a collective society don’t get our priorities in order we will fail the test of literacy also,…
    PS. And stop blaming the teachers, start blaming the lawmakers eg.) my state representative lives one hundred miles across the state…is that representation?

  9. CBS from the West

    “The demand of the baby boomers and their offspring to receive greater and greater publicly-sponsored benefits than they paid for for their parents, without having raised sufficient children or allowed sufficient immigrants to maintain the ratio of payers to recipients, is a problem that is easily fixed with a simple “no”.”

    I don’t think just say no will work any better here than than it did as a strategy for ending the nation’s drug abuse problems.

    All of those health care expenditures, amounting now to some 16-17% of GDP, are the *income* of the health care industry. The health care industry may not be as well-organized and powerful as the finance sector is, but they (I should say we, I’m a physician) are every bit as predatory and it would be foolish to underestimate health care’s ability to protect its turf and rents.

    Cutting health care expenditures _should_ be easy: everyone acknowledges that at least 1/3 is waste. And much that is not pure waste could be simply put off limits if cultural expectations about health were more realistic. But we have already seen the hysteria generated over non-existent “death panels.” Imagine what will happen when somebody really does propose to limit or eliminate certain health care services that produce little or no value at great cost: the industry will whip up public outrage and the politicians will cave to the resulting pressure.

    By the way, Josh, you are the first person I have seen mention the immigant issue in the way you have. I have, in other contexts, argued for some time that an easy solution to the demographic bulge aspects of our financial problems would be to actively bring in young, productive immigrants. Maybe even consider inviting Mexico to be the 51st state. But these arguments always get a chilly reception at best–you are the first I have seen to recognize this missed opportunity. Actually it’s worse than a missed opportunity: much of the country is actively engaged in witch-hunting and deporting immigrants who are paying into the retirement system even though they will never collect from it!

  10. “By the way, Josh, you are the first person I have seen mention the immigant issue in the way you have. I have, in other contexts, argued for some time that an easy solution to the demographic bulge aspects of our financial problems would be to actively bring in young, productive immigrants.”

    Among the people I know, plenty have been talking about this for years. It’s just that we don’t have the bully pulpit. No one represents sensible Americans. NO ONE!

  11. Reagan never closed the deficit. Neither did either Bush. Why do we have to do it now?

    he answer is we don’t. Deficit hysteria is a wonderful right wing diversion aimed at discombobulating Democrats and slashing social programs that right wingers hate. It has absolutely nothing to do with helping the economy.

  12. This Guest speaks the truth!

  13. Uh, :-)

    Jesus Christ was definitely not illiterate. Christ – he just had enough common sense to NOT write a holy book…especially a “holy book” like the “bible” ended up being – a smash up of pharisees and “interpreters” of the word – and both celebrating his crucifixion for 2000 years – albeit for 2 different reasons…

    Just the facts, Ma’am.

    How do YOU think “global” cultures view it all…?

  14. @ Annie & SpaseShip Earth___???

    Oh, did I forget to mention Buddha…

  15. Herbert Wetherby

    How do YOU think “global” cultures view it all…?
    Probably like most people, they believe what they want to believe. Not the one golden goose that got away, we can’t afford to believe in that, now can we?

  16. Ah, nothing like a little “Christmas” cheer! ;-)

  17. I myself have a very big problem with empowering the government to be the rationer of health services in general. I would like the government to work to break health care monopolistic behavior rather than facilitate or even legislate it, as is frequently the case now.

    But in the case of government-provided health care e.g. medicare, if the government won’t ration, who will?

    Full disclosure: I’d like Medicare to have to compete with private health care in a market, and I’d like for it to lose, so that it becomes a welfare program rather than an entitlement program. I think that was be a fairer and more just use of taxpayer money.

    I studied the NHS and the American health care system while at Oxford. My own research suggests to me that the government would fare poorly compared to private insurance, in a well-regulated, high degree-of-choice health services market where costs and benefits of different programs, including health care results, are transparently comparable.

    But I really don’t care if I’m wrong about that – what I do care about is that we not give the government OR private providers license to produce sub-optimal outcomes while compelling our financial “participation”.

  18. We are witnessing The End of The American Century…. dying empires have much in common… rotting from the inside by a hemodgeny that forgot what it took to build a world power. America will continue to kick the can down the road as long as the world financial markets allow… but when the Piper finally calls… Washington won’t be able to answer. The end will be ugly, with social unrest, market turmoil and useless finger pointing. The next crisis will make the last one look like a walk in the park. Better get ready, cause it’s going to get ugly…. And Happy New Year!

  19. Bayard Waterbury

    Robert Borosage had a really decent article in Huffington today relating to the problematic positions of the warring political parties. Actually he didn’t get much into the economics of it, but neither did you, Simon. My response to his article is entirely suitable here. What amazes me is that everyone seems to think that we need our present military budget to adequately defend ourselves. We could cut it by at least 25% if we left Afghanistan and Iraq. We could cut it by another 20% if we closed all unnecessary bases here and around the world (we have more than 775 overseas, for God’s sake). We could cut it another 15% by getting rid of outdated and unnecessary weapons and weapons programs. That would save about $600 billion a year. After all, many other countries simply rely on us to do all of the military dirty work. Why should we, or at least shouldn’t they reimburse us for all of the money we save them by doing so.

    Then, the rest becomes easy. We simply do a massive tax reform. Trash the entire 23,000 page tax code, and do a nice simple flat tax. No tax for anyone earning less than $50,000, 15% to $250,000, and 50% on everything above that. Tax corporations at a flat 25%, capital gains get counted as ordinary income. No mortgage interest deduction. End of story.

    These are my daydreams that will never happen.

    This is what I wrote on the Borosage article:

    “This is a truly scary moment in our political history. It is the first time when the plutocracy is so strong that it suggests the possibilit­y of true revolution­, not unlike the ones that occurred 235 years ago, both here and in France. The reasons for each were similar. A total imbalance in the wealth and power structure wherein the common citizen feels helpless to gain participat­ion leverage by civil means. Gerson is one of the truly scary ones, along with folks like Ann Coulter on the conservati­ve side. But the problem isn’t between the R’s and D’s, the L’s and the C’s, the Red and Blue, but rather between the “HAVE EVERTHING’­S” and the “HAVE ALMOST NOTHING’S”­. If we look at what is happening in this country, it is truly disgusting­. I’m not suggesting that we revolt, but, unless a charismati­c, clear-eyed leader appears who is really speaking logically and can grab the public’s imaginatio­n enough to overcome the ersatz extremism which is only serving as a distractio­n set against real solutions, we are destined to die as a nation. I am old. I thought a year or two ago that I would be able to die before all hell broke loose. I don’t think so any more. It’s coming at this country like a killer asteroid, and we just aren’t doing the things necessary to avoid a total national catastroph­e.”

  20. Bayard Waterbury

    Thanks. Well said. We know that Chris and Barney were disingenuous from the start. We got what I expected. Now watch the new budget gut any regulator who actually wants to work.

  21. “Cutting health care expenditures _should_ be easy: everyone acknowledges that at least 1/3 is waste.”

    Don’t forget that extending primary care (requiring them to get frequent check ups to maintain insurance) to *everyone* (yes, including the illegals) would be cheaper than the system right now. As is, the poor and immigrants only have contact with doctors in the emergency room where costs are orders of magnitude higher, they can’t be denied care, and we all soak up the cost when they don’t pay the bill.

    Even if we handed the care out for “free” to everyone below the poverty line and every illegal immigrant, we’d come out way ahead on cost.

  22. Bayard Waterbury

    Now, now, we know that 8.5% unemployment is the new 5%. Nudge, nudge, wink, wink!! So sad. SSDD

  23. Bayard Waterbury

    Your sincerity is touching. Your naivete charming. Your ideas decent. Sadly, logic has become the most discounted commodity on our planet. We are the human stain.

  24. Hear, hear. All this debt hysteria from the party that a) CREATED the largest debts America has ever seen and, b) produced Dick Cheney’s statement that deficits don’t matter, is disingenuous BS spewed purely for the sake of politics.

  25. Where could your fabled leader come from? Each group has some part of any person on this planet that presents themselves publicly that they will vilify. With so many people on each side of the argument taking up such extreme views (as their media overlords instruct them to), it’s impossible to satisfy ANY of them with a sensible middle ground.

    Even if such a person were to arise, they would be shouted down by the establishment and their zombified lackeys. No, there’s no chance for saving things here. Just secure yourself and those around you against complete social meltdown in any way possible, then be ready to close yourself off if and when it comes.

  26. Herbert Wetherby

    @ Overall, the US government has infinite ability to service its outstanding debt. There is no question about that and I am surprised someone on Johnson’s standing wants to toy with this notion – which is tantamount to getting down in the dirt with the mindless ones
    It won’t take much to derail your train, and afterwords, you have no trouble, I promise you that.

  27. For-profit health insurance companies have completely ruined the accumulation of DATA about what the REAL health care needs of the human species are at this point in time.

    No one knows what the “costs” are because no one knows what the real needs are…and I’m not even going into how much bad medicine ends up “costing” – usually just the cost of getting rid of a dead body…

    More misery for others = More money for ME ME ME

    is easiest to achieve with “health care”…just ask the Drug Lords…and the CEOs of United Health Care…

  28. The Wrecking Crew killed their way to “power” – it’s their modus operendi – the pre-emptive strike.

    The Kennedy brothers, MLK, and god-only-knows (Gold Sack as “god”) who went down in other countries…

    You want to see the “future” of USA – look at the fruits of USSR breaking apart and being shipped into USA – not your grandmother’s “mob”….

    Every GLOBAL psycho is the new immigrant coming to “ask what we the smart can do TO your country”…

    Arizona is already a Byelorus, and Utah is a theocracy, and California is predictably “high” through it all, but then they BELIEVE “perception is reality”…

    Logic? Wouldn’t a “leader” saying the perception is NOT reality be LOGIC in it’s purest form? And wouldn’t that be enough to send out the SWAT Team…

    You guys have to factor in what can be done in the name of Homeland Security thanks to the Patriot Act – they can make stuff up and get YOU to “believe” it…

  29. CBS from the West

    “Trash the entire 23,000 page tax code, and do a nice simple flat tax. No tax for anyone earning less than $50,000, 15% to $250,000, and 50% on everything above that.”

    Just to quibble over semantics: what you have proposed is the antithesis of a flat tax, it is a steeply progressive tax. Most people use the term flat tax to mean a single tax rate that applies to all income, first dollar to last. Some people use it to refer to a single tax rate, but applicable only after some fixed exemption amount of income. But once you introduce multiple marginal rates, particularly increasing ones, you are not in the realm of “flat” taxes.

    By the way, to be clear, I am making only the semantic point. I’m not expressing an opinion either way about the substance of your tax proposal.

  30. @Bayard: “Then, the rest becomes easy. We simply do a massive tax reform. Trash the entire 23,000 page tax code, and do a nice simple flat tax. No tax for anyone earning less than $50,000, 15% to $250,000, and 50% on everything above that. Tax corporations at a flat 25%, capital gains get counted as ordinary income. No mortgage interest deduction. End of story.”

    This is the first flat tax proposal I ever saw that made sense to me. Thank you!

    One more thing: can we have a 100% tax on estates over, say $10 million? Pretty please?

  31. History recycled via Uncle Sam & Taxes (~1977)
    Ref: “2201 Fascinating Facts” by David Louis c.1983

    “In 1914, the first (personal) year income tax was collected, Americans paid an average per capita tax of forty-one cents, and 1 percent of the population was obliged to pay taxes at all. [Woodrow Wilson signed the Federal Reserve Banking System (FRBS)]”

    “In 1977 Americans paid more than $227.5bn in taxes, according to the U.S. Dept. of Commerce”

    “According to the U.S. Chamber of Commerce, the average American taxpayer works almost three out of eight hours for Uncle Sam” ie.) work for the Uncle Sam until mid-May for zilch!

    “In 1978, according to the Office of Management and Budget , the U.S. federal budget reached the half-trillion-dollar mark. This means that the American government now spends almost $1 million a minute, every minute of the day, every day of the year. Each day the government spends $1.37bn.” (Balanced budget now on the fringe?)

    “The maximum threshold the American taxpayer will tolerate is ~40 percent!”

    President Obama is going big-time for a value-added tax (VAT), and won’t dare touch the Income Tax – the Gov’t monitoring done by the Internal Revenue Service (IRS) keeps the meek-serfdom aligned electronically through “Cyber Space”? The writing was on the wall when they hired 50 thousand new agents to oversee the HealthCare Bill? Nice!

    Ref: “Taxation in the People’s Republic of China”

    http://en.wikipedia.org/wiki/Taxation_in_the_People's_Republic_of_China

  32. Here is another “delightful” read:

    http://www.bloomberg.com/news/2010-12-28/out-of-lehman-s-ashes-wall-street-gets-what-it-wants-as-government-obliges.html

    Whomever has a “lick o’ common sense” will have very low expectations for effective tax reform, financial reform, fair & reasonable entitlement reform, and so on, when our captured political/economic system persists in its present form.

    Citizen’s United, compliments of the Supreme Court, gave us a MASSIVE blow. I can not express how far my heart sank upon hearing of the decision.

    Newly elected Republicans insanely believe they have been given a “mandate” to cut spending- mostly social spending, repeal ALL aspects of the health care reform, gut funding for whatever is LEFT of the Dodd-Frank Act after the million dollar baby lobbyists have worked their magic to “iron out the details”.

    As far as feeling that the CPI is an effective barometer for social security payments to keep up with cost of living- ridiculous. Seniors lose. CPI figures have been reconfigured umpteenth times to the point they are really WORTHLESS- I repeat- WORTHLESS.

    Same goes for GDP- GDI would be a much better reflection but it can not be distorted quite so easily. So GDP is THE GOSPEL- but print the revisions in the smallest of print and give it NO media play.

    And, what about poor old M3. Gone- but ah, it DID cost SO much to print out that material on M3.

    The FED has to be FORCED to reveal information pertaining to amounts and recipients of tax payer bailout money.

    The Patriot Act- no need to expound on this travesty.

    Information provided to the public is crafted, contrived and controlled.

    Let’s take all of the deregulation from 1980 to present, along with all of the above, pile it on top of a nail, and I think the coffin is about sealed.

    I recall Steve Forbes and his flat tax proposal while a presidential candidate- we know how much play THAT idea received. Ross Perot vehemently warned us about the “big, giant sucking sound” of jobs leaving the country resulting in the demise of our manufacturing base. His pie charts were corny to some and his vocal quality was a tad grating, but he made a heckofalota sense to me. Oh, yes, he was effectively silenced through backdoor threats to his family. Alas, a “perfect television presence with perfect teeth and a nice tie” won out over common sense.

    People appear to want Razzle dazzle- hence Sarah Palin.

    I can’t imagine how effective tax reform would ever even get out of committee.

  33. Simon,

    You are right here with your main point, that this package is wrong (policies that have as their initial effect an increase in an already heavy debt load for the US public sector are unaffordable, maybe even for a superpower with a reserve currency monopoly).

    But we all knew that and also that this is what would happen as a consequence of the US electoral system, once a build up of debt to finance unproductive investment (war, residences in the middle of nowhere) would be followed by a financial system crisis responded to by the gvt by additional deficit spending.

    It is interesting in this context that around 2000 pundits were worrying about a shortage of treasuries (at the then going rate the stock would be virtually exhausted around 2020 and maybe Agencies and CMOs would be suitable new benchmarks) Not our problem anymore..

    Your (by comparison) favorable comments on European policies (and, surprise, EU policy capacity) and even the acceptance of a Germanic core (that will do the right thing?) are appropriate.
    People have firm beliefs, don’t they, until they change their minds…

  34. In fact, this is quite meaningful. The gvt has no money for the jobless, and very little for the elderly. Retirement accounts are empty. Unaffordable branded medicine devours medicare. The result: look at Russia: life expectancy there has been in steady decline and gvt expenditure on the sick and elderly as well. That is what you get by starving the Beast ..

  35. Elizabeth,

    Economics is not for the numerically challenged. I always thought that “a couple” was a set of two elements..You manage to squeeze in five. But I agree with your pessimism, from a US citizen’s point of view. Which does not have to be correct, of course, and fortunately, the US economy is extremely difficult to predict, or to wreck…Individual standards of living though, are not so resilient and maybe this time there will not be a follow-on recession after a weak recovery (yr 2012 scenario), but just a long, dusty pain of stagnation and decay. Even a highly ambitious Obama might be discouraged. We will need someone with Arctic roots and survival skills to show the needy how to sustain themselves by hunting and fishing.

  36. CBS is right of course; it’s not a “flat” tax at all, but a progressive and radically simplified tax proposal.

  37. @cedar: here’s the pdf of a presentation Ellen Brown just gave in Marin County, CA. What do you think?

    http://publicbanking.files.wordpress.com/2010/12/pp-marin-12-10-4.pdf

  38. Brenda Vinall-Mogel

    Simon nice article.

    To some of the others here and those who just read, and in someways Simon, please put up with how I am going to get to my point:

    New York just had a major snow storm. Granted I am from Wisconsin and snow is a part of life here and I am only getting news on the plowing of streets from NBC as it is not that important to me. But I have never seen a larger group of people asking for services because they “pay their taxes” when they could work together like we do in the Mid-west and help each other move snow to get cars off of roads so plow trucks can remove snow off of side streets. I was rather amazed to hear this kind of “I pay taxes you owe me” mentality as opposed to “what can I do to make this “act of god” situation go away faster and cheaper for all”.

    If something like snow is going to cause this much of an up roar, how are we or Congress and State Assemblies going to cut services in the future when to cut even though the people say they want it is a political death sentence? Everyone says cut the military fine what are we cutting the size? the equipment? What we are doing? If we cut the size then an employment area that employs rather young volunteer workers is diminished. Do we do what was done in the the past with army buyouts? Some of these kids, I have children their age, are serving multiple tours, do we just leave them there until their service is totally over giving no chance for a family until they no longer sign up for military service (and yes, I know spouses are not issued with duffel bags.) Or do we cut back on equipment, safety gear, numbers of rounds issued, medical care to those who are hurt? Maybe the really big toys — which government contract that employs people are we going to cut? How are the economies around the bases that could be closed going to be effected? We couldn’t even close bases when we had good times without hearing about the unemployment they would create both here and overseas.

    How do we tell a public who pays taxes they are going to lose more jobs if we cut budgets — before things will get better. Do we want a double dip? This could honestly cause it. But then again not doing anything will cause further downturns also. What we need are jobs and tax revenue before we start cutting. We need people who can think outside of the box and the Loop. We need people in the press to stop patting “concerned citizens with good ideas” and “armchair economists” on the head like a 14 year old with a good idea and then go back to the “grown-up” conversation. IF the ideas are good then talk to me and if you are not referring to me then talk to them, but stop being the people of New York waiting for the snow to be removed. Grab a shovel and get the car in front of the line moving so the rest of the cars can be dug out and moved.

  39. Herbert Wetherby

    That is rather a interesting pyramid of ideas. Just as occured shortly before the Louisana Purchase, (Georgia, Alabama, and Mississippi had to be aquired first). The State of Georgia shipped over their own printing press and were paying the creditors with printed Georgia money. Angry creditors complained that the money was simply over printed and becomeing more worthless each and every day. They refused to be paid in paper money and instead reverted back to the orignal agreement of 3 million dollars in gold. When that could not be honored the First Bank of the Uniteds was formed and paid $3M of US Bonds for the purchase and removal of indians (the land could not be settled with the current situtation) on the above mention States. That lead to the trail of tears and the Louisiana purchase.
    What you fail to relize is, soon as the creditors demand to be paid with a different resource, the tower of paper power collapses on itself and becomes much like a new bridge that even the middle class can’t afford to pay to cross. Essentially the US tax payer is on the hook for items that only the upper class benifits from. And you could then create a trade war between the States where by the inefficiency of it all uses all the resourses and is left holding a bag of nothing. Much like you have today in CA,IL and some other states.

  40. @carla

    thanks for the post, read the pdf- many questions come to mind; will ponder.

  41. Numberically challenged, tell that to President Obama when he signed the extension of Bush-era tax cuts (rates).

  42. Huizer opined, “But we all knew that and also that this is what would happen as a consequence of the US electoral system, once a build up of debt to finance unproductive investment (war, residences in the middle of nowhere) would be followed by a financial system crisis responded to by the gvt by additional deficit spending.”

    Seriously? “War” and “residences in the middle of nowhere” in the same breath?

    With 7 billion people on Spaceship Earth – where, exactly, is “nowhere”?

    Should we stand on each other’s head, ala Cirque de Soleil, and have the person on top hold the satellite dish to get better reception from the Big Giant Head telling us how to “live” within our means?

    Obviously, you don’t have a Plan B for how to “manage” derivatives…

  43. Brenda, I refer you as well to the link I sent Cedar a few comments up.

    Hope you’re still thinking along the lines of lets.start.a.grassroots.party@gmail.com and that we’ll be able to get something going after Jan.3.

  44. Brenda wrote, in part, “But I have never seen a larger group of people asking for services because they “pay their taxes” when they could work together like we do in the Mid-west and help each other move snow to get cars off of roads so plow trucks can remove snow off of side streets. I was rather amazed to hear this kind of “I pay taxes you owe me” mentality as opposed to “what can I do to make this “act of god” situation go away faster and cheaper for all”.”

    The “Mid-West” should not be throwing stones at anyone, should they? Weren’t you guys in the news with some big whoppers regarding the maintenance of infrastructures – both “private” and “public”? Bridge collapse and Viking stadium collapse?

    Watch and learn, Brenda. The real story is CLEAR to all people in the Northeast…it’s more about “where’s Waldo”…

    “Renter’s” are not allowed to dig themselves out – bet you didn’t know that, did you?

  45. No, he’s right. America’s last “industries” are housing and war. Housing was being built in asteroid belts of major metropolitan centers. Perfectly viable farmland was bulldozed for the latest overpriced $500k+ abominations of modern architecture, with a convenient teaser rate ARM loan dropped on as the cherry on top. Then the hapless owner would commute an hour and a half in their 18mpg SUV (at a time when peak oil is becoming more and more apparent) to their factory job with Lockheed-Martin manufacturing the latest weapons for war.

    Huizer is correct. We do two things in America now. Build houses in the middle of nowhere, then blow up other peoples’ houses in the same.

  46. I’m always a bit concerned when I see comments suggesting some are self-actualized snow-removers, and others are self-absorbed snow-hangers-on.

    I should remind my 62 year old sister in Brooklyn, to get off her duff and shovel the entire street, and get the traffic moving.

    I occasionally am allowed to think out of the box, so why is it that only a handful of people are talking about imposing a sales tax on the bogus Wall Street transactions?

    In my view, this is preferable to “cutting and gutting” middle class wage earners, now facing real and ever-increasing austerity measures, for a crisis we had no role in creating, and perpetuating.

    PS I blow and shovel my front walkway and driveway, even with degenerative disc disease. :)

  47. Okay – agreed that war and housing is the only manufacturing left in USA

    (and even those two are “de-constructed” with bits and pieces made all over the place so that you need OIL to ship the pieces together)

    But since this is an economics blog and all the mistakes of FIAT $$$ are, supposedly, being addressed,

    Huizer is not admitting to any economic mistakes – GLOBALLY – so I’m not going to listen to his BIG GIANT HEAD of “austerity”

    because

    the banksters were PREDATORY – and he’s still spinning the psychobabble schtick of “americans are stupid”….

  48. Bruce E. Woych

    capitulating by recapitulation! Surrendering one compromise at a time.